Real Rare Earth’s Production Potential for 2013

While many miners may be turning attention to rare earth elements these days, there are likely only a small handful of companies that really have what it takes to master production of the resource within this coming decade. There are only four in fact, according to Steve Ward, Managing Director at Arafura Resources Limited; the Perth, Western Australia-based, ASX-listed miner possessing what can only be described as a major rare earth play in Australia’s Northern Territory. The project in question is Nolans; Arafura’s flagship project, planned for production in 2013.

“Very few will actually make it to the starting blocks and we’re very fortunate that we’re one of the four,” Ward says. “Only three will put substantial product into the market, one of the four will be putting in a lot less than the other three.” One of these top three projects is Nolans.

Coming to Nolans

Arafura’s story begins back in 1995, when its directors picked up some tenements in the Northern Territory, including Nolans. The company that previously held the project had been searching for uranium and Ward says that with only a very small amount of this present, that company chose to relinquish control to Arafura’s directors.

“[The previous company] hadn’t been focusing on other things and our founding directors had a wider spectrum of focus, if you like, and discovered the Nolans rare earth resource,” Ward says.

“Subsequent to that, the company also had some other tenements in the Northern Territory with other products and/or metals in them. We’ve got a tenement prospective for gold, a tenement prospective for iron and vanadium and a tenement prospective for nickel.”

Eventually reaching the point where seed investors became involved, this group did an IPO and listed the company in 2003 on the ASX. Rare earth resources have been the company focus ever since.

“We’re currently well-advanced on a Bankable Feasibility Study, which involves having a mine at the Nolans resource, and then the mined ore will be beneficiated at the mine site,” Ward says.

“The beneficiated ore will be sent to a new chemical processing facility located somewhere in Australia.”

Arafura is currently surveying a shortlist of exactly where that facility ought to be, while continuing to work through its project programme. Then when the company is ready to build this facility and develop the mine site, subject to raising the finance, Nolans is set to come into production in 2013. As for the company’s other tenements, it continues to create value by entering into partnerships with other people who develop them and earn into them. It all sounds straight forward enough thus far, but as Ward explains, there are a few specifics to dealing with rare earths that will make achieving production within this decade so difficult for the majority of other companies.

The nature of rare earths

Ward explains that there are 15 different rare earths and each and every rare earth project throughout the world is geologically unique. As a result, you have to develop your own chemical process to separate out the rare earths from the rest of the materials in the deposit.

“Arafura has spent the last four or five years developing and proving up the chemistry to separate out the rare earth, and in our case also to separate out the phosphoric acid because there’s phosphoric rock involved, and to separate out what small amount of uranium is there out as uranium oxide, so we’ll be able to sell rare earth, phosphoric acid and uranium oxide,” he says.

“Arafura has been around for 15 years and it takes about that long to take a rare earth project from start to finish. You’ve got to go through this long process of developing the technology, you can’t just go out and buy it because it doesn’t exist.”

The magnitude of how much work it takes to bring such a project into production begins to become clear, however the surging global demand is more than enough to warrant Arafura’s efforts.

“The demand is also very positive going forward because rare earths are used in the following three areas,” Ward explains.

“[These are] high technology goods which you or I might want such as ipods or LCD screens—they go into new high tech applications that consumers want; they are used in clean energy applications that society wants—wind farms and hybrid cars, etcetera; and they are also used in energy efficient applications which regulators are demanding.”

As a result, not only will Nolans be one of the few to reach production this decade, but it will also come into a market of huge product demand with very positive price projections going forward. However, there is one other particularly significant advantage to Nolans; its location.

“Nolans is one of the very few truly world-class resources of rare earth outside China, and China has in recent years provided about 97 per cent of the world’s rare earths. Though China is containing the producers for use in China, it’s on a program to limit the amount it explores,” Ward says. “As such there are a lot of people outside China who are looking for sources of rare earths, and Nolans is one of the only projects which will come into production in this decade.”

It is at this point that Richard Bresciani, Arafura’s General Manager for Strategic Development and Exploration, joins in to highlight just how important this position is.

“We’ll be able to take advantage of the pricing in international markets as opposed to those constrained within China,” he adds.

“The location of the deposit itself in central Australia is very well-located for infrastructure. People think it’s in the middle of Australia so it must be miles from everywhere and while it is, we’re also well-located to a major highway, existing infrastructure and a relatively large population centre not far away to provide labour to the mine site.”

Bresciani also says that many other rare earths projects will be constrained by technology and access to capital because the overall size of the market value is just over a billion US dollars.

“It’ll grow but still be less than US$2 billion over the next several years,” he explains.

“Consequently it’s still somewhat capital constrained so you won’t have 20 rare earths projects going into production this decade because the technology won’t be developed across 20 projects and also there’s going to be capital constraint.”

All things considered, it is clear that Nolans is a truly vital project for the short and long-term future of rare earths production.

Towards production in 2013

Today Nolans has a JORC-compliant resource estimate of 20,000 tonnes per annum of rare earth oxides for over 20 years, and that’s based on the extent that the deposit has been drilled so far.

“It’s still open, we haven’t completed the drilling and when we do some more drilling this year we want to identify how big it is,” Ward says.
“It could be much bigger than we think and if it is it’ll enable us to contemplate a second phase of production.”

Bresciani says that despite Nolans already being firmly-rooted on the global project radar, potential for contemplating a second phase of drilling beyond the 20,000 tonnes per annum resource is, “very important when you look at the looming supply shortfall on growth projects within the market.”

“It’ll be very important to have at our disposal, a quality of resource to be able to contemplate a second phase of expansion.”

The next step for Arafura is confirming where it is going to build the chemical plant and Ward says that the company hopes to announce this very soon.
“Then when we’re ready to acquire project financing it’s going to cost us hundreds of millions of dollars to build, then obviously we have to build it, then we have to commission it,” he explains.

“It’s a complex mega project and so our challenges in that regards will be having excellent project management capabilities to make sure we deliver as intended, on time and on cost.”

It’s a real case of being able to enjoy first-mover advantage for Arafura and its Nolans project, but as Ward rightly highlights, none of this happened overnight. Arafura has spent years working tirelessly to get to this point and it looks like these next three years in the run up to production in 2013 will likely prove exciting and rewarding for the company.

arafuraresources.com.au